BofA to repay TARP money, rest to follow?

Posted Dec 3rd 2009 8:30AM by Tom Johansmeyer
Filed under: Citigroup Inc. (C), Bank of America (BAC), Wells Fargo (WFC), Recession, Financial Crisis

Bank of America (BAC) surprised the market on Wednesday by announcing that it would repay the $45 billion in TARP money it received over the next few days. This gives the company much more flexibility in compensating its employees, but it could leave the bank exposed to future economic shocks.

CEO Kenneth Lewis, who's expected to retire at the end of the month, said he wanted to take care of this before leaving the firm. This decision comes at a great time for the Treasury Department, which has been feeling the heat for committing taxpayer resources to a dicey problem without seeing much progress yet.

Experts watching the banking sector think this could be the first in a wave of repayments, with Citigroup (C) and Wells Fargo (WFC) yet to settle up. Tony Plath, a banking professor at the University of North Carolina at Charlotte, told Reuters, "Once the dam is broken, my bet is we're going to see other institutions announce total or partial repayment plans."

Bank of America is planning to sell up to $18.8 billion in securities that will convert to common stock once shareholders approve an increase in the bank's shares. The rest of the $45 billion would be repaid in cash. While the bank is repurchasing all its outstanding shares under TARP, it isn't buying back the warrants.

Tags: bac, Bank of America, C, Citigroup Inc., inthenews, tarp, Troubled Asset Relief Program, TroubledAssetReliefProgram, WellsFargo, WFC